Travis Kalanick Is Exiting His Uber Holdings Uber Quickly
bloomberg.com
bloomberg.com
> The 43-year-old’s remaining stake in the ride-hailing company now constitutes about a fifth of his $3 billion fortune, according to the Bloomberg Billionaires Index, down from about 75% before the lockup.
To be fair, if I had 75% of my net worth in a single asset, I'd also try to diversify. My wife and I both have lots of stock in the companies we work for, due to RSUs and employee stock purchase programs; and although we both believe our companies are a good investment overall, we regularly sell shares just so that we don't have so many of our eggs in those two baskets. 20% is a perfectly reasonable target I think.
[1] https://www.marketwatch.com/story/dont-invest-in-your-compan...
[2] https://www.forbes.com/sites/maggiemcgrath/2013/10/22/how-mu...
If this doesn't apply to you, and a megacorp was your first job out of college that you stuck with for your whole career, you may want to be a bit more cautious with your capital.
I remember when the CEO visited, and while she clearly didn't know that our division existed, the things she talked about highlighted how little we knew of the rest of the company. You have something with tens of thousands of employees, and you have probably quite a few groups of a few hundred people that just have no particular connection to the rest of the company. In our case, we started as an acquisition that was kind of forgotten about.
Investment funds with a real thesis and research don't do this. Concentrated positions and proper risk management is active investing and generates much greater profits. If you know a sector and company is doing well, diversifying will only reduce your returns.
If you mean that >30 stocks is pointless, I agree. How much different is the Dow than the S&P 500 or the whole market, even though its methodology is atrocious?
If you mean that even with a large edge, you should take positions that are >20%, I don't agree.
The business they built and still either run or largely preside over, however Travis was ousted— I'm not sure he'd agree with their current direction as a result.
He can have a seat at the table, but the table is largely comprised of people who wanted him out, and can continue to make decisions he disapproves of.
This isn't a case of Larry Page and Sergey Brin at Google, or Bill Gates at Microsoft, where the founder is well-respected, left of their own will, and still maintains an influence in a meaningful capacity.
[1] https://www.reuters.com/article/us-uber-ceo/uber-ceo-travis-...
Activist investors play this game all the time so it says nothing about the strategy one way or another, just that the appetite for risk is higher the more control you have.
He’s not in charge any more so why should he have unwavering confidence?
But what's in it for the co-founder? Usually it's that they have lots of power over the company, e.g. being a CEO, and have more freedom than someone who still has to prove that they deserve that power. Jeff Bezos for example "only" owns 100 billion USD but controls a 800 billion USD company, with the freedom and power of a cofounder. After a certain amount of money, say 10 million, you can fulfill most of your dreams. And there are plenty of people who have that amount. But few can say they are in control of a 0.8 trillion dollar company.
As the other comments point out, Travis was kicked out though so he lost his power. So it's only understandable that he diversifies his portfolio.
One example is people who actually own mansions generally live in a relatively small space inside. You can only really use one room at a time and walking around takes time.
[0]. https://www.reddit.com/r/AskReddit/comments/2s9u0s/what_do_i...
FWIW, I kno(e)w four billionaires through my work (one deceased, one I lost contact with), and their life is not at all like described here, though they could afford that and more they keep a pretty low profile and you likely have never heard of them, and likely never will. But the 'controlling interest in a company you've likely heard about' is a common factor for three of those four.
The people that throw money around as if there is no tomorrow are typically the ones that have an unhealthy urge to be recognized as wealthy, the really wealthy people are relatively quiet about it in comparison.
That may of course be a reflection of the group of people that person connected to, I can see how there are very different circles of wealthy people just as there are different circles of people that are not wealthy.
Shows how easy it is to underestimate how different lives we all live, depending on our experiences and outlook - even in the same country. Money is probably just one big parameter, but there are surely many others.
But, if you’re living off of say 5m/year from your assets a 1m/year splurge is a huge chunk of your income. At that level renting one would be far more appealing to most people. Though sure if owning a jet was a major hobby vs a means of transportation it’s easily possibly, just as I said a major expense.
Put another way, someone making 100k/year could send their kid to prove school for 20k/year, but it’s a major expense that would impact their lifestyle or savings significantly. It’s possible, but not affordable.
Pilots and maintenance will cost you $1M+ per year. Depending on how much you use it, that could be significantly more. Spending 10-20% of your net worth on a vehicle up front + 1% pa going forward is not "comfortably afford".
If my net worth was $2M, I would not say that I could comfortably afford a lambo.
Or, fly anywhere in one swoop with a less than 10 year old Citation CJ4 or similar that will run you less than $6m and seat 10 passengers. And the annual operating costs will not get you anywhere close to $1m. Even a G650 isn't going to run you much more than $1.5m annually unless you are putting a ton of hours on it.
But I will also say that 10-20% of your net worth (wouldn't be up-front, it would be financed.) is not that big of a deal when you have a huge net worth. It's a lot when you make just enough to survive. It's not a problem when you still have enough left over for several lifetimes of comfortable living. Just depends on your priorities.
I agree that chartering is usually a better way to go. But private jet life is comfortably affordable at a $100m net worth. Maybe not private-jet-life, and mega-yacht-life, and rare-original-art life all at the same time. But you could definitely choose one or the other.
If there is anything that really is limited to billionaires, it seems to me logically it's going to be status, proximity, location, attention that are in limited supply. Not material things.
I do hope that vengeful behavior like that would subsequently hurt one's ability to find investors for future projects. Unfortunately there is also a lot of that "this only shows that he is ruthless, we like ruthless" attitude in the world so I'm not sure that it would actually be taken as a negative signal. But that surely won't be an issue for someone with a reputation so firmly dialled in already as Kalanick.
On top of that, the idea of him going back to square one doesn't fit too well with the mental model I formed back when he was constantly on the news, I'd rather type him as the rare exception amongst founders who can easily leave it all behind and indulge in the spoils - but that's just a gut feeling of course, I know less about that guy than I know about some people who have been dead for more than a thousand years.
However, going from 75% to 20% means that something changed, and that's not a good sign
TLDR: Most of your net worth in a single stock is insane.
Further, a lot of high net worth individuals that hold a large % of stock will announce their intention to diversity 6-12 months ahead of time to avoid this type of issue.
A rush liquidation usually isn't a good thing.
to be more fair, balanced portfolio theory generally doesn't account for creating 2+ billion dollars out of thin air which you then need to diversify. I think it's appropriate to include the singalling impact that his massive position changes have on over-all value.
So yes, he's making the locally maximizing correct decisions because let's face it, that's what the individual cares about; You could argue that the overall maximizing decision is for the founders to keep huge volumes of equity and bare the exposure that comes with this because, hey - they really believe they are changing the world for the better!
But I actually think this is fine for pensions.
Although options themselves are riskier so not sure what sort of incentive that sets.
well then I would advise you to stay far away from Denmark. I personally don't feel like I have to rebel against the man every minute of the day and safeguarding people from engaging in hazardous financial behaviour is about as reasonable as forcing them to put a seatbelt on
Sure you can; in fact in many cases you should. Say, one knows (to keep things scientific; replace "knows" with "honestly believes" to somewhat reflect real life) his $100M invested in a company to have a 50% chance of being worth $1B in 5 years and 50% chance of being worthless.
This means expected 500% return in 5 years, which should make (diversified) investors pour money in. But as a real person with $100M net worth, I do not want a 50% chance of zero net worth at any expected return rate. I would rather get $80-90M today, which will give my family 100% chance of financial independence, and leave $10-20M in as a riskier bet. My 2c.
There were fears that the huge number of shares would depress the price even further. Seems like that hasn't happened.
and yes, that includes employees who are also married to their consolidated, vested, and liquid positions. they too should be treating it as a trade.
Plus, the future isn't so clear and the markets are at all time highs and he has other company that may require liquidity in the coming years. Better be in cash.
Isn't the world economy built on the idea that markets will always go up? Every year should be an all time high, otherwise we're in recession which is (apparently) tragedy to be avoided at all costs, no?
The 'business cycle' of expansion and contraction is obviously visible in history and has reasonable macroeconomic explanations, and it's expected to continue.
People try to predict the timing of it (which is hard because acting on these predictions often alters reality so that they're less likely to come true), and they definitely try to ensure that recessions aren't long and hard and that the economy can recover from them faster, but nobody is saying that they can prevent a recession, and the interventions which can artifically postpone a recession (i.e. postpone a correction of some market) would generally only make the recession much worse when it happens.
It is less the assumption that the market always goes up (eventually) and more the lack of mathematical comprehension.
1987 saw a massive market crash with no recession.
This is the most hated bull market ever. None of the experts are buying heavily into this market (it's all stock buybacks that's driving this market up).
So, you can see why everyone is uneasy about these extremely high PE ratios.
What index are you looking at? SP 500 is at about 23 [0] which while higher than median, is definitely not at all time highs.
Not really. Recessions are where there is less spending and production, not when the stockmarket goes down.
While stockmarkets and property prices and the like to tend to go up and up in nominal terms a lot of that is because of the currency they are denominated in losing value through inflation. If you adjust for that there is much less of an uptrend.
When you take the logic to such extremes, it becomes a meaningless statement. It's literally impossible to disprove this assertion if you just ignore the evidence that says it's not true. Japan is absolutely a counterexample.
Considering an impending recession, it just makes sense he would dump these now.
Certainly in raw numbers the market is in territory that is, while not unprecedented, associated with a couple previous rather significant collapses. It's safe to say a recession will happen but difficult to say exactly when.
The country is incredibly divided. About half the country thinks the country is going to shit anytime their party isn't leading. The country usually does go to shit when leadership is divided. And the economy has almost always gone to shit when the yield curve inverts. Combine that with the fact that inequality is at an all time high and a lot of people WANT to see asset prices go to shit, a lot of people want to see this administration go to shit, and you've got a recipe for people predicting and cheerleading recession.
I'm young, so I can hardly speak of 2007 at all, but I think this is a unique circumstance in the amount of people that seem to WANT a recession. Would love to hear from someone older and wiser if this aspect is normal.
Will there be a recession? Yeah. When, is the trick, it could be tomorrow or 10+ years from now. That recession will also be followed by a boom. Such is life. That we have not had one recently is a bit unusual but not unprecedented. You could even argue the the world is already in the 'coming' recession, minus the US.
I would posit people wanting a recession is just a form of jealously and resentment. Normal? Not in my experience. But then I may have just not noticed. I remember the gas lines of the 70s. No one really wants that just to feel smug, do they?
For the past few years many macro indicators (Shiller PE, Market Cap to GDP, etc...) have signaled that returns will not be in line with the recent uptrend. This doesn't mean there will be a crash, it could also signal an extended period of reduced returns.
Accordingly I don't put much meaning behind stories about an executive selling.
I can't think of many other examples where the company is doing so poorly and the co-founders made off with $1B+, given that this was not an acquisition.
Maybe a better title would be "Getting to a Billion without Long-Term Viability or Acquisition".
basically every company drops from their IPO. indexes and funds and such don't include them for months (6? or more?) in order to give that a chance to settle out.
basically every comment drops from their IPO
Of course that doesn’t mean every unprofitable growth company is Amazon, but Amazon’s success means companies won’t stop trying to emulate it.
Maybe "people were saying" the same things about Amazon then as Uber now, but that doesn't mean they are correct. Completely different business models. Amazon had billions in free cash flow going back to 2005, just no accounting profits. Uber has negative free cash flow. We hear the same thing about Tesla ("they're reinvesting profits!"), but they have something like $10B negative free cash flow since inception.
All profitable companies are alike; each unprofitable company is unprofitable in its own way.
Hypothetically speaking, if there were a reporting mechanism that clearly separated operational expenditure from re-investments, Amazon and Uber would likely be in two different ends altogether. More importantly, Amazon didn't just reinvest into existing products, they were also adding entire new categories of businesses (AWS), new models of operation (2-day shipping) and relentlessly adding new categories (wider selection) - all at the same time.
It's possible that Uber might be doing something similar, I'm just not that aware of the breakdown of Uber's expenditures and losses.
Uber gets ~20% of what you spend on a ride and their per-unit expenses are basically moving a few bits around and having someone in a Filipino call center present to provide customer support.
That may depend on the market, but the unit economics in my market (Toronto) are undoubtedly positive.
That's called a zombie company btw, https://www.bis.org/about/areport/areport2019.pdf
https://www.crunchbase.com/organization/city-storage-systems
Of, you mean Kalanick. I doubt it but who knows.
Plus 3.8% for Net Investment Income Tax.
Plus, he resides in CA, so tack on ~12% (he's making so much marginality doesn't really affect things) in state taxes.
~36% in total, which is a lower effective tax rate than many people here, but not quite as outrageous.
That page also calls out a "net investment income tax" that sounds like it would add an additional 3.8% on such large capital gains.
He can liquidate his holdings without worrying much about misleading the market and a potential law suit from shareholders if he was still the CEO or a director.
It's unclear whether the stock Dara Khosrowshahi is buying comes at a discount, though.
The article's implication - that Kalanick is simply pessimistic about his investment in Uber - seems more reasonable.
Once you're not longer the person running the show, it makes a lot more sense to diversify, as you probably don't give a damn whether you're signalling confidence or not.
Insider stock purchases (price and quantity) have to be disclosed to the SEC. His last purchase was 250,000 shares @ $26.75.
https://www.nasdaq.com/market-activity/stocks/uber/insider-a...
Also interesting to note Travis was able to execute options for $0.61 in May, and turn around and sell the shares at market.
Trav can sell without creating too much concern, but many eyes are on Dara.
This is a serious question, so I'm not understanding the downvotes.
When the company i worked for IPO'd I had to pay taxes on the stock when the paper money turned into real money.
You generally don't have to pay taxes on stock options until you actually have income from them - ie sell. There are some exceptions, and in some cases paying at-vest can actually reduce your overall tax burden (by excercising options you don't intend to sell right away, you can start the clock to turn them into long-term capital gains when you do).
Real estate taxes are a thing, yeah, but only at the state level and below. A better statement would be: there is no federal wealth tax, and taxes on non-real property are unheard of, but that's a mouthful.
So, if you get a billion dollar in RSU, then you pay a couple hundred million in tax at time of IPO. Hence, unless you are already rich, you need to sell stock just to cover the taxes.
I'm not sure what kind of stock Uber issues and what kind a founder would have gotten (e.g options, RSU,...)